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    AMERISAFE (AMSF)

    AMSF Q2 2024: 2.7% Premium Growth, 1.48 ELCM Amid 8–9% Cuts

    Reported on Jul 30, 2024 (After Market Close)
    Pre-Earnings Price$47.85Last close (Jul 30, 2024)
    Post-Earnings Price$47.84Open (Jul 31, 2024)
    Price Change
    $-0.01(-0.02%)

    What went well

    • Consistent Business Growth: The company reported 2.7% voluntary debt premium growth this quarter and has achieved growth in policy count for five consecutive quarters, indicating sustained momentum in expanding its book of business.
    • Improving Underwriting Metrics: An increase in the ELCM to 1.48 on a year-over-year basis reflects adaptive pricing and disciplined underwriting in a competitive environment, supporting long‑term profitability.
    • Proactive Claims and Reserve Management: Executives highlighted proactive claims handling and robust reserving practices—demonstrated by strong favorable reserve development—underscoring the carrier’s effective risk management and its ability to adjust to market conditions.

    What went wrong

    • Lower favorable reserve development: The favorable reserve development decreased from $10.9 million in Q2 2023 to $8.1 million this quarter, which could indicate weakening claims management performance.
    • Rising expense ratio: Increased investments in sales and underwriting have driven the expense ratio up by 90 basis points over six months, potentially pressuring overall margins.
    • Competitive market pressures with declining approved loss costs: Approved loss costs are down by 8–9%, which, amid a competitive market with softer rate environments, may negatively impact underwriting profitability.

    Q&A Summary

    1. Growth Strategy
      Q: Is policy count growth sustainable?
      A: Management highlighted improving pipeline efficiency and agent engagement that drove 2.7% voluntary premium growth and consistent policy count increases over five quarters, underscoring a broad-based, organic growth approach.

    2. Underwriting Margin
      Q: What was the Q2 ELCM value?
      A: The reported ELCM of 1.48 reflects disciplined underwriting and proactive pricing despite compressed loss cost pressures in a competitive market.

    3. Pricing & Loss Cost Outlook
      Q: When will loss costs bottom out?
      A: They cautioned that with approved loss costs declining 8–9%, rising combined ratios may eventually prompt rate adjustments, especially with factors like Florida’s reimbursement changes being closely monitored.

    4. Reserve Development
      Q: Why is reserve development lower this quarter?
      A: Favorable development was $8M this quarter versus $10.9M previously, attributed to timing differences in case resolutions and consistent reserving practices that reflect individual claim outcomes.

    5. Retention Management
      Q: How do rate hikes impact retention?
      A: While pricing adjustments are necessary for underwriting profitability, management maintains that deep account knowledge and proactive service help sustain strong retention levels even if rates are adjusted.

    6. Audit Premium Comparison
      Q: What was last year’s Q3 audit premium?
      A: The Q3 ’23 audit premium stood at $5.6M, compared to the current quarter’s $4.8M, reflecting variable impacts from wage inflation on premium volumes.

    7. Expense Ratio Trends
      Q: Why did the expense ratio rise 90 bps?
      A: The increase is due to upfront investments in sales and underwriting functions aimed at driving future growth, with expectations that expenses will level off over time.

    8. Large Claims Frequency
      Q: How many claims exceeded $1M in six months?
      A: In the past six months, there were only 4 claims over $1M, indicative of proactive claims management and historically low frequency of high-severity losses.

    9. Policy Growth Source
      Q: Is growth concentrated in specific channels?
      A: Growth has been broad-based across independent agents with no concentration in a single distribution channel or geography, reflecting enhanced pipeline efficiency.

    10. Severity Costs Outlook
      Q: How will Florida fee changes affect severity?
      A: Although Florida’s fee schedule increases may pressure reimbursement levels, established provider networks help mitigate the cost impact, and such factors are already being integrated into pricing strategies.

    11. Construction Market Trends
      Q: What is the impact of wage inflation?
      A: Wage inflation of around 6% is steadily boosting insured payrolls among small and midsized employers, supporting overall premium growth despite a challenging market environment.

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